Q4 2019 Earnings Call
Excuse me everyone. Thank you for your patience and holding this call will begin momentarily again. Thank you for your patience is holding the call would begin momentarily. Thank you.
[music].
Media Group 2009, <unk> fourth quarter earnings Conference call Today's conference is being recorded.
Let's turn the conference over to Joseph Giovanni. Please go ahead Sir.
Thank you Travis and good morning, everyone and thank you for joining Nexstar media groups 2019 fourth quarter conference call, all reaching Safe Harbor language, after which we'll get to managements commentary in your questions and answers all statements or comments made by management. During today's conference call I Didnt statements of historical fact, maybe deemed forward looking statements for purposes of the private Securities Litigation Reform Act.
1995.
Nexstar cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward looking statements made during the call.
Actual details on these restaurants certainties. Please see Nexstars annual report on form 10-K for the year ended December 31st 2018 Tribune Media's annual report on form 10-K for the already December 31st 2018, and each of Nexstars and Tribune's <unk>.
Tribune media subsequent public filings with the Securities Exchange Commission.
Nexstar undertakes no obligation to update or revise any forward looking statements whether as a result, new information future events or otherwise would that it's now my pleasure turn the conference call over to your host Nexstar, Chairman, President and Chief Executive Officer Perry sorry.
Please go ahead.
Thank you Joseph and good morning, everyone. Thank you for joining us today to review Nexstars fourth quarter or nearly complete integration of the Tribune media operations. Our recent strategic station transactions. The completion of new multiyear retransmission consent agreements and our most recent return of capital and leverage reduction initiatives.
Taken together Nexstar at EUR 2020, supremely position to leverage our scale, our focus on operational excellence and the already active political cycle to generate significant free cash flow growth and materially reduce our leverage and drive total shareholder returns our chief Financial Officer, Tom Carter is with me as always this morning.
Excuse me 2019 was remarkable period for Nexstar in his 23 year history as throughout the year, we deployed a broad range of our proven M&A integration financing operating and other strategies to create new near and long term value for shareholders in mid September we closed the highly accretive acquisition of Tribune media.
Greetings the largest U.S. television broadcast station group, what's truly national reach in coverage, what nexstar owned or operated stations now, reaching approximately 69 million U.S. television households, and combined web traffic that would be the nation's top site for news and information as ranked by Comscore.
Transaction also benefits or free cash flow visibility in profile from a consistent and meaningful contributions for my 31.7% TV food network ownership stake and our positive nine digit cash flow from our National Cable Network WGN America.
At closing, we increased our synergy guidance to approximately 185 million from approximately 160 million at debate, we've realized nearly all of that target and we fully expect to reach or exceed the full 185 million before the end of Q3.
Operationally, we acted quickly to integrate the Tribune media assets into Nexstars platform and I've told our promise to expand relevant local programming and put our best teams on the front line to capitalize on the many growth opportunities we see throughout the portfolio since closing we've hired a promoted 11 general managers to regional Vice presidents and for final.
It's department executives to support our expanded operations every name for senior corporate executives to manage content acquisition WGN, a distribution sales and corporate communications today. The Nexstar nation is comprised of more than 16000 talented team members across America, United by a common commitment to localism integrity innovation.
Great.
During the year, we also entered into de leveraging purchase and sale agreements with Fox television completed new multiyear retransmission consent agreements, representing approximately 70% of our subscribers entered into new long term network affiliation agreements with CBS, Fox and NBC and realigned our digital businesses to drive future growth and profitability with the continued share.
During a best practices between Nexstar and the former Tribune organization, coupled with key factors, including the Super Bowl on Fox Summer Olympics on NBC double digit distribution revenue growth and expected record levels of 2020 election cycle spending nexstar expects to generate pro forma average annual free cash flow of approximately 1.1.
Seven 5 billion for the 2021 cycle or 25 50 per share based on our basic share count at 45.7 million outstanding class a common shares that's an increase of over 15% compared to our guidance and pro forma annual average free cash flow for the 1920 cycle of 1.02 billion.
Our robust free cash flow from operations will be bolstered by meaningful proceeds from the recent purchase and sale agreements and reinforces our confidence in attaining our post Tribune closing priority, reducing nexstars net leverage ratio to four times are below by the end of this year with our integration strategies now playing out I'm proud of the way the two organization.
As of come together as well as the inner wide and enterprise wide passion for professional excellence all of which is reflected in our new 2021 guidance.
From a local programming front as promised we expanded local news programming and our Portland in Sacramento markets, while launching a new capital Bureau in the state of Missouri. We also began preparations for the summer 2020 launch of news nation. The WGN America Prime time national newscasts, which will reach approximately 75 million U.S. television households.
And we'll be complemented by our new around the clock mobile news App News nation now Dot Com news nation will leverage the local marketing regional expertise and resources of Nexstars 5400, local journalist, which is more than any other broadcast or cable network and 110 local news brings a crown around the country.
Right Reallocating financial resources from WGN syndicated programming towards news nation, we intend to provide viewers with back based news and information without biased opinion, while delivering attractive marketing solutions for national advertisers.
Nexstars 2019 fourth quarter financial results marked the end of an outstanding year for the company as we delivered another period of record off cycle political year operating performance with topline profitability and cash flow metrics exceeding consensus expectations, while further extending our long term record of delivering enhance shareholder returns. During 2019, we returned 80.
2.8 million to shareholders in the forms of dividends and in the fourth quarter, we allocated 45.1 million a cash from operations to Opportunistically repurchasing approximately 440000 Nexstar shares at an average purchase price of <unk> hundred $2.57 per share, which reduced our basic share count to 45.7 million outstanding.
Class a common shares at yearend.
The same time, the active management of our capital structure in free cash flow growth has provided us with the financial flexibility to support our leverage reduction in return of capital initiatives.
Including additional share repurchases dividend payments debt reduction and strategic business investments.
This point in addition to our share repurchases last month, our board of directors approved a 24.4% increase and the quarterly cash dividend to 56 cents per share beginning this first quarter, marking the seventh annual consecutive rise in our cash dividends.
We previously noted that upon completing the Tribune transaction, we were very near the ownership care, but we saw the opportunity to continue to optimize our portfolio and free up some national cap space in some instances to position us and new strategic markets well markets, where we believe we can generate greater growth and upside and this regarding Q4, we announced instead of space.
And transactions with box in addition to discuss the strategic benefit of those transactions. The box transaction will contribute to our ability to significantly due de lever in the near term as the result of approximately 240 million after tax proceeds, which we will receive later this quarter.
With respect to our expectations, where net retransmission growth in the low to mid teens percentage range in 2020, and the second half of 2019, we entered into new long term affiliation network agreements with CBS Fox and NBC and as a result over 80% of our big four affiliations now contracted through December 31 of 2021.
It over 70% of are being four affiliations are contracted through December 31 of 2022.
The same time, we successfully finalize new retransmission distribution contract renewals addressing approximately 70% of our subscriber base and taken together the affiliation renewals, which also include ROTC agreements and new Retrans contracts provide us with uniquely clear visibility for our net retrans revenue growth expectations and Twentytwenty and beyond.
Turning to our fourth quarter results and reflecting the continued strength of Nexstars legacy operations and the first full quarterly contribution from a former Tribune media assets, we delivered double digit growth in all of our non political revenue sources, including organic growth in core advertising during the quarter for the fourth quarter net revenue Rose 37 point.
9% to 1.1 billion, despite a 73.9% year over year over year decline in political advertising transaction related revenue gains, including the inclusion of WGN America and recent distribution fee renewals drove the 56.7% rise in distribution revenue to a quarterly record of 445.8 million.
14.2% increase in deferred revenue to 74.3 million was also a quarterly record for Nexstar.
Notably early active spending by presidential and gubernatorial candidates are both parties in the fourth quarter combined with our expanded scale in key primary space resulted in record fourth quarter odd year political revenues spending.
36.5 million or more than doubled their comparable 2017 fourth quarter levels, excluding political revenue our fourth quarter net revenue would have increased approximately 62%.
In Q4 of 1916 of our top 25 add core categories were up on a same station basis, which led to a 1.2% rise in same station core AD revenue.
In addition, nexstars local sales initiatives continue to generate healthy levels of new business revenue with Q4, new television advertising revenue rising on both a quarterly sequential and year over year basis. Our sales teams generated 17.5 million of new television Q4 revenue, that's a 9% rise over the prior year, we see upside.
This new television AD revenue metric in 2020, as the former Tribune stations more fully adopt nexstar sales disciplines, and we transition their sales team to our nexstar incentive plans with respect to political our fastest growing AD category. It exceeded our budgets and benefited from the advent of spending a new candidates entering the presidential race as well as stronger than anticipated.
Spending for the Louisiana gubernatorial race in fourth quarter and continued healthy levels are pack issue at proposition spending around the country.
Total combined fourth quarter digital and distribution fee revenue or 520 million or rose approximately 49% over the prior year period and accounted for 47.3% of net revenue compared to 43.8% of net revenue in the prior year period, the year over year increase in fourth quarter non television AD revenue reflects new distribution agreements.
Reached in the second half of 29 team and the legacy Tribune media revenue gains related to the after acquired clauses in our retransmission consent contracts also added in his WGN America carriage revenue and our realigned digital operations with our successful 2019 renewal of approximately 70% of our subscriber base with approximately 15% of debate.
Used to be renewed in 2020 are significant net retrans revenue growth in 2020 will complement the strong political growth. We're also seeing this year.
As I noted earlier 2020 is off to a strong start in terms of core political and distribution revenue gains and we expect to make further meaningful progress towards meeting our leverage targets in Q1.
Our commitment to our shareholders is reflected in a recent dividend increase and fourth quarter share repurchases and as we reduce leverage in the share count we will be even better position to allocate our free cash flow to other shareholder friendly initiatives ongoing dialogue with the investment community regarding our unrelenting focus on creating near and long term shareholder value is borne out in two data.
So I'm proud to share with you this morning.
As reported by Kiplinger and using the Russell 1000, as its universe of stocks Nexstar ranked fifth overall of the top 10 performing stocks of the last decade with a total shareholder return of 2974%.
In 2019 alone we delivered a total shareholder return of 52% clearly outpacing the market. So while I started my comments. This morning revering the activities and initiatives. We undertook in 2019 to establish our next phase of significant growth beginning in 2020 I believe these data points underscore the fact that nexstars accompany managed by shareholders for our shareholders.
With that I'll turn the call over to Tom for the financial review and update Tom Thanks, Perry and good morning, everyone as outlined in this mornings press release the actual results for the three months ended December 31, 2019 reflect the company's legacy Nexstar broadcasting and digital operations and a full quarter results full quarter result from.
Tribune media stations, which required on September 19th of 29 team.
Fourth quarter 2019 revenue from WGN America.
Also acquired in the Tribune transaction is included in core advertising revenue and distribution fee revenue.
Third quarter contribution from Nexstars, 31.3% ownership stake in TV food network and other investments acquired in the Tribune transaction is included in the full income statement on page seven under income or loss on equity investments net.
The comparable three month period ended 12, 31, 2018 reflects nexstars legacy broadcasting and digital operations.
Actual results presented here and reflect the impact of $29 million and $5.5 million of onetime transaction expense expenses incurred in the quarters of 20 December.
30, Onest 2019, and 2018, respectively.
With that I'll start with a review of Nexstars fourth quarter income statement and balance sheet data after which I'll provide an update on our capital structure at some points of guidance.
On a combined company basis and pro forma for the divested stations fourth quarter same station net revenue was down 11.8% or a 137 million due largely to the 187 million dollar reduction in political advertising as compared to the fourth quarter of 2018 same station core advertising was up one.
0.3% distribution fee revenue was up 12.8% on the same station basis, and continuing digital revenues were down 5.7% on a same station basis due to our continued de emphasizing nonprofitable and marginally profitable business products on the digital side. However.
Local station website revenue was up 13.9% on the same station basis total net revenue excluding excluding political was up 4.9% on a pro forma same station basis fourth quarter station direct operating expenses net of trade expense were approximately $432 million.
Up from 274 million in the prior year, reflecting the full quarter impact of incremental expenses related to the Tribune operations and the growth in budgeted increase in network affiliation expense as partially offset to our reserve a rising distribution revenue same station pro forma fixed expenses.
Excluding programming expenses were down 4.7% over the previous year as our cost reduction efforts begin to take hold.
Fourth quarter station Aesynt SGN area was approximately 197 million related the fourth quarter of Tribune operations, while corporate expense was 64 million inclusive of 9.6 million of stock based comp and 29 million a onetime transaction expenses when excluding the noncash comp in the onetime transaction expenses.
Recurring corporate expenses were approximately $27 million, which came in better than our guidance. We provided on the third quarter call of approximately $30 million.
Fourth quarter operating cash taxes were 46.9 million, while ongoing capex and transaction Capex related to Tribune operating system transitions totaled 64.5 million I'm, sorry, 62.9 million included in that 62 9 million is 25 million associated with Tribune station.
Integration and conversion expenses cap expenses during the quarter.
Spectrum related Capex totaled approximately 23 million, which was partially offset by $16.3 million of reimbursements from the government on the FCC Repacked program. As a reminder, we anticipate being fully reimbursed reimburse for all spectrum repack related capex over the course of the year.
Fourth quarter Capex came in consistent with our initial expectations of approximately 62 million.
Fourth quarter total interest expense expense amounted to 106 point 806.8 million up from 53 million in the prior year with cash interest of approximately 101.8 million compared to 52 million in last year. All of this obviously is associated with the debt incurred for the trivia transaction.
Fourth quarter broadcast cash flow of 100, and a 417 million as well as adjusted EBITDA of 408 million and free cash flow of 203 million pre transaction expenses exceeding consensus expectations and primarily reflect transaction related growth and distribution agreement renewals executed in the second half.
2019.
Looking ahead for the combined company, we project recurring cash.
Corporate overhead exclusive of stock comp and transaction costs to be approximately $40 million for the first quarter and we're on track to achieve a run rate corporate overhead of approximately 120 million by year end, which is consistent with the guidance. We provided upon closing of the tree and Tribune transaction in September of 2019.
Noncash comp for the quarter is expected to approximately $10 million and 45 million for the full year transaction expenses will be approximately $10 million to $15 million for the first quarter and will decline during the remainder of the year.
First quarter operating cash taxes are estimated to be approximately $40 million and we're reiterating our prior guidance of approximately $350 million for the full year.
First quarter Capex should come in at approximately 35 million and $160 million for the full year, which is slightly above our initial guidance due to onetime capital associated with the build out of New studios for WGN America is primetime national newscast news nation, which as expected the launch this summer.
Finally, we expect Nexstars cash interest expense to approximately $95 million for the first quarter and less than $400 million for the full year and improvement previously provided guidance due to anticipated debt reductions during the year.
Total net leverage at 12, 31, 19 was 5.18 times and the first lien Covenant was 3.52 versus a covenant of four in a quarter.
We expect leverage to reduce consistently through the out the year and in that vein in the near future. We expect to close on the sale of two stations to Fox and the purchase of one station from Fox, which will net the company approximately $240 million available cash, which we had.
Aspect to use for debt reduction.
Net debt as I mentioned before at 12 31 increased at 8.26 billion compared to 3.84 billion in the same period of last year, reflecting the financing of the Tribune transaction during the fourth quarter. We took actions to further lower our cost of capital extend maturities as we completed the.
The offering approximately $665 million five and five 8% senior notes due in 2027.
These issues. These notes were issued with the same terms is our existing 1.12 billion.
Aggregate principal amount of five and Fivex nodes also do at 22027 as part of the original TRID TREVYENT fin financing.
The net offering proceeds together with the cash on hand, we used to redeem redeem nexstars six in an 8% senior notes due in 2002 and five and seven 8% do also in 22 and to pay related premiums fees and expenses by Opportunistically accessing the capital markets, we were able to retire the most.
Expensive pieces of our unsecured and near term debt bonds.
I'm sorry.
Most expensive pieces or unsecured debt and our nearest term bonds are now do at 2024 at which time, we will have materially reduced total net leverage nexstar has consistently demonstrated prudent use of leverage and its ability of source capital at attractive rates to support our strategies for growth and the enhancement of shareholder value.
Today, our capital structure ways, the proper at about a fixed and floating debt and attractive weighted average cost of capital and prepayment and refinancing Flexibilities. In addition to the balance sheet and capital structure improvements Nexstar leveraged at strong free cash flow generation to invest in our broadcast and technology platform, while enhancing shareholder value through our return.
In of capital and leverage reduction initiatives in this regard for the year, we returned $82.8 million to shareholders in the form of dividends and in the fourth quarter reallocated slightly in excess of $45 million of cash from operations to Opportunistically repurchased 440000 shares of Nexstar stock at an average purchase price.
A $102.57 that reduced our basic share count to 45.7 million outstanding class a common shares at year end.
In terms of capital allocation, we continue to strategically allocate our free cash flow in a manner that has resulted in substantial growth for the company and delivered significant value for our shareholders. While also reinvesting in the business our local programming and our employees over the last three years, we have completed two transformative transactions that were Trump.
Endlessly accreted free cash flow nearly tripling the size the company at the same time weve allocated approximately $195 million towards opportunistic share repurchases at attractive prices and return over $200 million to shareholders in the form of quarterly cash dividends.
Looking ahead with continued double digit growth and distribution revenue and what many expect to be substantial spending relating to the upcoming 2020 presidential election cycle, we have excellent visibility to delete to de levering to delivering on our free cash flow targets for the 2020 2021 cycle now.
Star expects to generate pro forma average annual free cash flow in excess of 1.175 billion or $25.50 per basic share marking increase of over 15% compared to our pro forma guidance.
Pro forma average annual free cash.
Cash flow guidance of the 1920 cycle of $1.020 billion in Additionally to our recently upsize dividend, we remain committed to allocating a significant portion of our free cash flow towards leverage reduction and are confident and reaching our target for reduced leverage.
To less than four times by 12 31 of 2020 in summary, our integration synergy realization and operation plans are generating results. Our capital structure is in great shape from a cost of capital maturity and ability to quickly address leverage and our service to our local communities and local and national advertisers has never been stronger.
Our disciplines in these areas have driven significant growth as well as consistency and visibility to our results as such we remain confident in our ability to deliver to deliver on the value of Tribune transaction through 2020, which will enable us to enter 2021 with an eye towards increased level of return to capital to shareholders that concludes.
The financial review for the call and I'll turn it back over to Perry for some closing remarks before Q today.
Thank you Tom our results since closing the Tribune transaction have served to fortify the high expectations for the great value. This transaction has and will create for nexstar shareholders over the past 23, plus years, we've completed successfully integrated and generator growing value for shareholders from 36 separate M&A transactions, which have increased.
Our scale diversified our portfolio and enabled us to remain highly competitive in today's media and technology ecosystem from our shareholder standpoint contributed transaction will be our biggest invest transaction to date in terms of driving significant free cash flow accretion.
Given the significant free cash flow from operations, we are aggressively reducing our leverage we intend to increase our return of capital to stockholders, while investing in our business and team members to improve our service to our viewers and advertisers. This focus combined with our time proven operating an integration strategies will enable us to extend our strong long term record of shareholder value.
Recently, we look forward to reporting on our continued growth and accomplishments throughout 2020 and on behalf of the more than 16000 employees of the Nexstar nation and our management team. Thank you for your continued interest support and for joining US today. So now let's open the call through Q1 Athree address your specific areas of interest operator.
If you will like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using guys speakerphone. Please make sure. Your mute function is turned off the leverage signal to reach our quick.
Press Star one to ask a question.
Our first question comes from you.
Wells Fargo.
Thank you maybe first Tom on the free cash flow guide does that include any implied increase to your expectations for free cash flow in 2020 or is that you guys. It's really about 2021 over the Nike 20 guidance, you know with 21 being higher than night key due to like net retrans or cash.
Cash interest.
I would say obviously the majority of it comes from the difference between 19 and 21, there is a slight increase in 20 because of.
The final disposition of the retransmission agreements.
At the end of last year, which do positively affect 20, but clearly the majority of that increase happens between.
19 and 21.
Okay, and then I figure I'll try to put you all down if I could on political I think your pro forma 16 number or maybe it's 18 number is a little below 400 million any sense of what sort of <unk> percent increase you might be able to realize on that and it was also just wondering if you know what percent of your revenues, thus far from from Michael Bloomberg.
Sure.
I'll answer I'll take the first question you're correct. The pro forma same station 18 comparable will be slightly less than 400 million and given the relatively.
Small sample size that we have so far and while it's positive.
Again, it's it's a low teens percentage of where we think things will come out.
In the from the first quarter relative to the entire year, we're expecting and the guidance includes a high single digit growth in political advertising above 2018 levels.
As it relates Bloomberg is it's a goodly portion of our first quarter money.
But there are there some offset because we think theres some candidate and and Pac money, that's probably on the sidelines because of his spending right now so and again you know our as Tom said the game has played in the in the two months before the November election, that's were.
50% to 60% of our political revenue from the year will be realized so.
We're off to a very strong start fact, we made our first quarter political budget for the quarter yesterday.
But again as Tom says is in the scheme of things are relatively small sample size for the overall year.
And then last one from me once you hit that leverage target of four times are below.
I'm guessing you don't have a lot of appetite to deleverage further you're not too far from the cap. So I mean should we kind of be thinking about 100% of free cash flow going back to shareholders thereafter.
I would say, 100%, maybe a bit aggressive, but we would certainly allocate more of our free cash flow.
To shareholders and I think Thats up you know topic for another day and several board meetings before we get into any sort of.
Situation like that but I will tell and as we experienced in the fourth quarter, we're not sitting in our hands with regard to shareholder return of.
Capital to shareholders, if theres opportunity, if there's opportunities to do it a efficiently and at what we believed to be reasonable returns, we're not going to have to wait we can allocate some capital along the way to additional.
Shareholder support.
Great. Thank you.
Yeah.
Our next question comes from Aaron Watts Deutsche Bank.
Hi, guys. Thanks for joining me on.
Sounds like it was a good quarter in the fourth for core advertising.
Can you talk a little bit how auto performed underlying that and also than what you're seeing in the first quarter, so far for core and how autos performing there too.
Hi, I can tell you that auto was down the you know the lowest of single digits in the fourth quarter, which was its best performance on a relative basis in two years.
I would say that first quarter trends are about the same in terms of auto spending on the television stations.
And then more broadly Perry how how's overall core look relative to the 1.3% growth you saw in the fourth quarter.
Yes, I think that we're kind of on the same trajectory, maybe a little less than that there you know, there's probably going to end up being more than budgeted political advertising in the first quarter, but.
We did a great job with the Super Bowl on our Fox affiliates in fact, our Kansas City station cancer, The Fox station airing the game and the fourth quarter had a 97 share of audience, which in my 40 years of it being in the business I've never heard of a 97 share so.
You know people, obviously still watch broadcast television for big events and local news and so.
I think our first quarter trajectory might be a little bit low lower than the 1.2%, 1.3% same station growth, we had in the fourth quarter, but certainly within our budgeted expectations and we're still curious what the other 3% we're doing.
Yes exactly.
Separately.
Can you talk a little bit about the underlying subscriber base in the fourth quarter, what youre seeing in terms of.
Changes in your MPPD distribution there.
Sure well and actually I appreciate that question fourth quarter and what we're going to talk about today is the first time that we're including Tribune in our results and for the last year on a on a same station consolidated basis.
Including Tribune, our subs for the last 12 months or down 3.5%.
Obviously included in that 3.5% is a significant blackout on the legacy Nexstar stations for a two month period in Q3, and if you ex out those those subscriber losses and trying to isolate that laser that out it was down 2.2%.
You know, we're happy with those results.
Tribune has a little bit different portfolio than Nexstar did in terms of composition and OTI et cetera, but those are well within the parameters of our expectations for combined.
Scriber performance.
And thats balancing the traditional MVP days with the over the top.
Contract that is you should think about that as total subscribers yes.
Okay, Great again again, we're seeing significant growth in the continued to see significant growth in the LTE, which partially offsets.
The decline in more in traditional MPPD subscribers.
Understood. Okay. Thank you for the time.
Okay.
Our next question comes from Dan Kurnos <unk>.
Mitch Mark.
Thanks, Good morning, a nice print as usual guys just Tom maybe just digging down a little bit more on that given that there is a little bit of difference in composition of the Tribune portfolio just.
How are you thinking about maybe either geographic large market small market differences going forward as it relates to to sub counts and then just in terms of the news nascent launch I don't know Perry. If you wanted just color that up a little bit more for us the nabil, obviously be a little bit smaller, but probably invest in that first half and then.
Just kind of your thoughts on how that can expand and help WGN.
Sure I mean first of all it gives us a content that we will own as opposed to content that we rent from others. It will allow us to have intellectual property and and their content to develop a robust news nation now app, none of which WGN America has currently today. So we think it adds value.
Are you and the distribution a part of the equation in terms of carriage and uptake on on rate overtime, and we obviously know that we've introduced.
No.
Good day to a whole category of advertisers financials and tech and other companies that weren't simply buying the network our for sale was to a.
Non two or financial company and so at a double our current cpms. So if that continues to work obviously, it's going to increase the value of WGN and its self liquidating because the the except for the Capex, which.
I will be realized this year as a onetime expense building out the infrastructure for this national News channel and network in.
In Chicago.
But the operating expenses are being funded by the roll off of certain syndicated programming expense. So the growth there will be basically self financed internally and not a big increase in opex as it relates to subscribers again I think the the important thing to note is that we don't yet have kind of a new normal settled.
Out because none of the Tribune stations Big four affiliates were carried on any OTI platform until we closed on the acquisition and as you know we get those sub counts reports in arrears. So we won't know until later this quarter, what fourth quarter looked like and again those launches were phase we didnt ultimately get on some of the t. platforms with the big.
For Tribune stations until until after the turn of the calendar to January of 2020, so it will be a little while before it settles out I think again, it's just important to note that our guidance implies sub count erosion greater than what we are experiencing and have experienced so people should take comfort in that.
I would say that's exactly right the the them the portfolio differences are.
Between Nexstar and legacy Tribune are there.
To put that in perspective about 5% of Nexstars total subscribers are OTI right now that number four tribune is closer to 3% as we close that gap as Perry mentioned with the launch of some of their big four affiliates that weren't on the OGC platforms I think we'll see.
Growth moderate or.
Attrition moderate as we at recapture some of the some of the loss subscribers from the traditional quite honestly largely the satellite providers.
Got it Super helpful guys. Thank you.
Our next question comes from Cow Evans Stephens.
Hi, Good morning. Thanks, We just came off the call. We're one of your peers walking away from net Retrans margins.
Indicator relations I think.
Across the board.
Gary could you take a second kind of step back and give us.
No relations.
Well I think we said in our prepared remarks and in the press release that we expect a low to mid teens increase in our distribution margin in twentytwenty.
So we will stand by what was said and what was written.
Obviously, we have the data points to work to support that internally.
And low to mid teen increasing distribution margin.
No and that and net distribution dollars not a margin it's kind of net margin.
Yes.
Got it okay.
We've been kind of weathering some some headwinds on the digital side of the business can you.
Yes, when we're going to annualize that.
And it sounds like the TV Dot Com station digital is very strong just maybe size that national digital piece of course as well.
Sure.
The National digital piece, I think you'll continue to see some.
Some variability on that we have recently deemphasize.
A largely social platform that we had we have kept elements of that business, but not the meant majority of that business. So I think you'll see total digital continue to bump along between flat to down slightly on a comparable basis to prior years.
I would say that the good news is it's obviously did digital's again is comprised of two real businesses. The local business, which continues to grow at as I mentioned here almost 14% in the fourth quarter and we see that continuing at that pace continuing in that.
Kind of cadence continuing during the year the national digital business is being Deemphasized and we're obviously seeing negative comps to prior years.
So I think youre going to see on a combined basis that that will continue to be flat to down slightly probably for two or three more quarters.
All right, probably two quarters because by the back half of the years when WGN A's New news nation now App will begin contributing to our digital results.
Our we have a burgeoning data businesses growing significant double digit increases, albeit off a low base, but you know this transition I think you'll see the ultimate run out of it will obviously have reported results because were not up against attribute digital history that will be positive throughout the year, but again.
I think we are we are in the seventh or eighth inning of the transitioning out of these businesses that had little to no margin and those businesses have changed over the course of the last couple of years as some of the large service providers have really made it more difficult to access inventory.
That we have had historically resold we're seeing the reseller business was always a lower margin business and now it's a it's a marginal margin business.
Got it one quick housekeeping question for those.
Bottoms up models could you share a total retrans sub count.
As we not no.
All right on a given shot.
Yeah nice try.
Our next question comes from Jim Goss Barrington Research.
Okay. Thanks, a couple of them one at a little bit more on WGN. A is it intended to be a complement to the existing markets or do you do you envision trying to extended beyond the as you said it was a 75 million households reach right now by buying either another.
Ken will play a foreigner put it out or something of that nature.
I think we'll invest in WGN a as it is a current asset of the company I don't think you'll see us.
And our existing investments in food network and the cooking channel in combination with discovery, who manages those assets were.
31.7 shareholder a percent shareholder and and have a seat on the board, but in our relative passive.
Participant there, but I you know, we're going to program primetime as a counter programming strategy. All other networks are either in entertainment News Entertainment sports or opinion shows and we see an appetite for news it will be seven nights a week in prime time repeated in late night.
And we're you know that will grow if it is successful but at this point that's entirely what we're focused on.
We think not only the timing is good but you know we've got three pages of advertisers now we can talk to nationally that had no interest in the channel prior.
And so it's our job is to regain growth and create value out of our out of our existing assets and that what we that's what we are first and foremost focused on the best way that we can grow WGN America is to make its programming more relevant and more unique and that's what we're doing when we do that then we think that.
The NBP days, we'll see the value when it because they'll their consumers and their customers will see the value in it and we'll be able to potentially expand distribution simply because they are the product is better.
Okay.
I recalled way back with the Tribune.
There were always rights issue applications to even getting programming onto a the cable channel. So I gather you're going to be more of a.
News focus pretty much all all the time and not as much entertainment and the other day parts as well.
Well I still have significant programming commitments I think the rights issues you were talking about we're back when it was a superstation. It has been converted to a 100% basic cable networks are we play in that universe again, the beauty of this as we have 5400 journalists around the country that will form the backbone of our reporting and yes.
We'll be on the ground where in the story happens before anybody else can charter a plane to get there and parachute in that we'll have the local context now we're hiring given our 140 plus individuals not only to produce in present the news in Chicago, but to fill in a white areas, where we matter and have a station presence.
And ultimately this will work both ways right. This stations will provide the material.
On a bottoms up basis that the the network will use to compose its national newscast, but we also overtime look to become the National news source for our local television stations.
You know if you subscribed to CNN, you're not exclusive and obviously news nation can be exclusive video content back to our stations and Sean and Gen. Lyons, who were manning the effort to head up this channel and this news effort for US are talking to third party providers that could provide us.
International News.
Video that we may want and so those talks are ongoing.
Okay. Maybe one final question are there any best practices coming out of tribune's existing.
Operations, there could extend front to a broader nexstar platform.
Oh, absolutely I mean, you know the beauty of this is that a good ideas don't necessarily where a certain uniform. So we're sharing our best practices with the acquired stations. The acquired stations are sharing their best practices with us.
One of the things that started in Tribune that we've taken on and in our expanding is the concept of a nexstar diversity Council, where we're pulling people from around the company to a two kind of staff and our committee that will quantify and create best practices in terms of diversity and inclusion in our higher.
In process in our activities and things, we do that and that was a tribune idea. So that's just one example of a best practice that we traveled over into the combined company and the other one I would mention in my World is the distribution side.
Again is based in Philadelphia, and we have retained the vast majority of those people, it's 10 or 12 people from it administration side of Retrans and carriage fees from all of our properties also and affiliation side again contractual as well as financial admin.
Just ration of all of that as well as a deeper bench for.
For the actual management of those contracts and negotiation of them.
All right. Thanks, Tom Thanks Perry.
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She comes from Craig Huber Huber Research partners.
Yes, good morning, a few questions.
I would just for extra clarification, what do we want to say the first quarter core AD revenue was tracking up a little less than I think you said 1.21, 0.3%.
Fourth quarter.
So I think Thats, a fair assessment, its you know a slightly lower trajectory than that.
And just given a lot of concerns out there about this corona virus and all that I know, it's obviously early here in the U.S. and hopefully nothing but im just any sense parity from talking your British advertisers and then all the various markets you have if there's any ANC stuff there any issues come up we might see some pullback on advertisement is just too early to to know when speculate.
Oh, and backhanded way if your quarantined in your home and one of the few things you can do is watch television I think advertisers see the benefit in that we've had absolutely no discussions of people you know I think the Anx just kind of fan by the you know the the drumbeat of the coverage but.
We don't think it will have a negative impact on our operations in fact, it could you know if it becomes more widespread in the United States and there's more quarantine in home and all of that then it could potentially benefit our business because we'd be the primary source of entertainment I think.
And then I think you mentioned Perry, 3% to 5% of your.
Your subs comfortable OTI t. platforms out there so.
Just because it could you expand upon that a little bit if you think about a typical market.
Well sure whole footprint, how does this sort of breakdown the whole sold in a given market that.
Don't watch any of your top four big for TV stations versus the percentage that get us through a potential MPPD versus the part that's Oh TT versus the percent the comes over the or how do those four numbers for breakout in your mind that average market for you guys.
I don't think there is an average market yeah I you know that's.
I think that we're about 84% paid 16% over the air and that's virtually status quo for the last half a dozen years or so within the 84% into pay TV ecosystem.
I think that you heard Tom say, 3% to 5%, depending on which side of the house, you're looking at today, but let's just call it 5% when all the Tribune stations get activated or something close to that so you know, it's 79% traditional MPPD and 5%.
Virtual MPPD, that's about as exact as I can get for you because I'm not sure slicing and dicing it across 115 markets.
You're going have variations on the theme and and so.
But that gives you some snapshot theres a statistic out there that somewhere between 90 and 95% of the population has reached by broadcast television during a given we so your question is how many don't watch any television I think its single digit percentages.
Okay that that that's that's very helpful and then.
Can you just talk a little bit about the category should you talked about auto, but its surface insurance et cetera.
Anything thats really out outliers on them from a positive side youve you'd want to maybe talk that you're seeing now.
And also on the flip side the ones are doing significant worse than the average.
Yeah, I would say retail probably in the fourth quarter was below our expectations, but again, if you look in you know internally here insurance and attorneys were both up basically double digits.
The financial category banking or with a pleasant surprise that was in the positive as well as service various and then you get into our next.
Group of product categories home repair entertainment lottery spending grocery stores drug stores and pharmaceuticals was are one of our highest percentage growth on our on a category basis.
You know telecom travel packaged goods home electronics and appliances Hvdc utilities were all up.
You know literally double digits and some substantially into double digits. So you know again I you know 16 out of 25 is probably the best scorecard, we've turned in a while and we feel pretty good about the underlying.
Underlying economy, and the underlying strength of the economy.
Also perrier Tom want to ask did you sort of think about this new evolving.
Advertising category sports betting you sort of think out here over the next three to five years.
I would just sort of think about just could you quantify that maybe how significant you think that could be for your advertising core advertising, maybe as a percentage and how much do the ghibli could add for the Tommy gets a little stuck it is more more states allow sports betting. Thank you.
There are view I think is at you're correct. It's on a state by state basis.
And and so it will grow kind of organically and.
And we don't see it as a huge.
Category contributor.
We are the one instance that we have right now and is where all the states surrounding the market participate in sports betting is Philadelphia, Pennsylvania, New Jersey, Delaware and.
Our revenue was in the tens of thousands of dollars not to hundreds of millions so.
I think that if anything it will increase engagement in the actual broadcast if you've got skin in the game, a better or crop that I think it will probably where it's a golf telecast or or a football or basketball game I think there will be more engagement.
Might help viewing levels and viewer retention.
But were fairly sanguine on it being a game changing category I think it will grow over time, but we don't have enough data points to give any any real projections, but we're not we're not looking at it as being the.
The next to the next Big thing if you will.
Thank you guys.
Yeah.
Our next question comes from John Corn, Rich JK media.
Couple of questions. Thanks.
On the subject of food channel can you give this is an idea what the latest annualized dividend was to you.
Or it was.
For 2019, Yeah, Jess Jess out distribution not a dividend cash distribution was just south of 200 million.
Okay.
And is your expectation that it should at least be up somewhat this year.
We haven't given specific guidance, but I don't think we're expecting large amounts of growth off of that but some.
Okay.
Tom the Euro re now in Denmark, and observers, we all know.
What's your reaction here to a 15% increase in free cash flow share stocks down 3%.
I don't think they're related at all I think they down 3% on the stock price has to do with.
Investors, obviously trying to get some liquidity re arranging their portfolios risk off trades et cetera, we can only control what we can only control and clearly right.
Clearly this is more of a market phenomenon than a fundamental phenomenon as it relates to nexstar stock.
Could you Reclarify, what you said about.
Light downdraft in core growth from the first quarter did I hear you say it was primarily due to political being bigger than you might originally expected.
Well I mean, we're going to have growth in the first quarter I'm only two months ended the quarter and my net revenue or Encore is ahead of where it was last year. So I don't want to leave the impression that we're not going to have core growth.
You know I, just yet can't quantify where we will come out I know, where we're projecting to come out and it would be.
Growth over the prior year of our expectations are for core to grow in the first half of the year and then take a holiday from growth because of that political spending in the back half of the year. Okay.
Going back to food channel.
Is this for the time being a long term keeper for you.
Yeah.
And less someone came in approached us with an offer that was.
Accretive to our shareholders and keep in mind.
Mostly they the distributions are valuable to us and part of the issue as we've said over and over again, it's the fact that a lot of the basis the tax basis and the Tribune assets are very low because of the bankruptcy and as such.
And outright sale of an asset whether it be WGN, a or the food network or a station.
Comes with a tax bill and it has to be accretive for us.
On an after tax basis from an asset sale versus the value of the free of the the cash flows and that that equation does not work in our favor from at from a sales perspective at this point given where markets are.
But the distributions are fully taxable so.
Sure.
As it is all of our EBITDA from all of our assays yeah.
Okay guys. Thanks.
There are no further questions in the queue at this time I'd like to turn the call back over to today's presenters.
Thank you Travis and thank you all for joining US here today, I guess item to call by saying with the stock down 3% with the news we put into the market today that sounds like a great buying opportunity, but you all on the call we'll take your measure of that and so we.
We look forward to where joining you in a couple of months to report on our first quarter.
Results and progress and thank you for your time today.
Thank you ladies and gentlemen, this concludes todays teleconference. You may now disconnect.
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